What does 'subrogation' refer to in the insurance industry?

Subrogation refers to an insurer's right to recover costs from a third party that is responsible for causing a loss to an insured party. This process allows the insurance company to step into the shoes of the insured after paying a claim and seek reimbursement from whoever caused the damage or loss. This helps insurance companies mitigate their losses and can ultimately lead to lower premiums for policyholders since the insurer can recoup some of the costs associated with the claim.

This concept is an important part of the insurance process because it helps maintain accountability and reduces costs that could otherwise be absorbed entirely by the insurer. By recovering funds from the responsible party, insurers can maintain their financial stability and continue to provide coverage to their policyholders.